Repairs carried out after expiry of the insurance period, Cl. 16-14

Cl. 2-11 of the Plan contains rules relating to causation and the occurrence of the loss (i.e. the time of the casualty).  According to sub-clause 1 of Cl. 2-11 the insurer is liable for loss incurred when the insured interest has been "struck" by an insured peril during the insurance period.  If the peril struck during the insurance period, the loss of hire insurer is liable also for loss which is sustained later.  For example, if the insured ship grounded just before the insurance year expired on 31st of December 2015, the 2015 insurer will be liable for the loss of time even if most of the loss of time occurred in 2016. On the other hand, if a ship suffers a machinery casualty in 2016 as a result of cracks in the machinery foundation from the preceding year, the 2016 insurer will not be liable for the time lost. If the assured had loss of hire insurance for 2015, the assured must turn to that policy for cover.

However an important reservation must be made as a consequence of the rule set out in sub-clause 2 and 3of Cl. 2-11. If the cracks were unknown at the commencement of the 2016 policy, they shall then be regarded as a marine peril which struck the ship when the cracks started to develop in 2015.  If so, the 2016 insurer must cover the lost time relating to the repair of the consequential damage, whilst the 2015 insurer must cover the lost time relating to the repair of the original cracks. 

Where the damage does not affect the vessel's technical and operational standards required to meet the safety requirements, the assured may decide when the loss of time shall occur (i.e. when he will put the vessel in for repairs). However, with regard to the insurance cover, the loss of hire insurer has a justified interest in requiring that a time limit be set to the assured’s right to postpone repairs. This is dealt with in Cl. 16-14, which reads as follows:

The insurer is not liable for loss of time resulting from a stay at a repair yard that commences more than two years after expiry of the insurance period.

Loss of time resulting from a stay at a repair yard which commences after the expiry of the insurance period is recoverable in accordance with the rules in Cl. 16-5, even if the daily amount is an agreed amount pursuant to Cl. 16-6, if this results in lower compensation.

Sub-clause 1 provides that repairs must have been commenced not later than two years after the expiry of the insurance period, otherwise the loss of hire insurer will not be liable. The reason for using the commencement of repairs as the cut-off time is that the extent of the loss of time cannot be established until the repairs have been carried out. 

If a multi-year policy has been entered into, the two year period will not commence only at the end of the multi-year contract. This was a debateable point until 2003 because the Plan tacitly pre-supposed that the insurance period was one year. In periods where the premium increases there may be demand for multi-year policies, and in 2003 a new sub-clause 4 was added to Cl. 1-5 dealing with insurance periods. This new paragraph expressly provides that in relation to i.a. Cl. 16-14 the insurance period shall be deemed to be one year, even if the insurance attaches for a longer period than one year. Thus, for instance a five year insurance period must, for the purpose of Cl. 16-14, be split up into five one-year periods, commencing at every anniversary date of the agreed date of inception of the insurance. If the one-year periods follow the calendar year with the first inception date 1st of January 2015, the two-year time limit pursuant to Cl. 16-14 will expire at 31 December 2017 for any damage that occurred in 2015, 31st of December 2018 for any 2016 damage etc.

This time limit is an extension of the one-year limit given under Cl. 11 of the 1972 and 1993 conditions. During the 1996 revision of the Plan, there was discussion as to whether the time limit should be extended even further than two years in order to bring it in line with the five-year time limit allowed under the hull conditions in Cl. 12-6. However, the conclusion remained in favour of a two-year time limit, mainly because loss of hire insurance has traditionally been considered as short-tailbusiness.

The stay at the repair yard shall be considered to have commenced the moment the voyage to the yard begins.  If the repairs are carried out during several separate visits to repair yards, the time limit must be applied to each separate stay.  The assured cannot circumvent the rule by commencing a temporary repair or repairing only part of the damage within the two-year limit. 

Sub-clause 2 provides that if a stay at a repair yard is commenced after the policy period has expired, the agreed daily amount is the maximum limit of the insurer's liability. Within that limit, the assured is only entitled to recover in accordance with the rule in Cl. 16-5. This means that the daily indemnity for repairs carried out after the expiry of the insurance period shall be calculated as if the insurance contract were an open policy. However, the daily indemnity will always be limited to the agreed daily amount, see Cl. 16-6, and this may well result in a lower compensation per day than the actual loss. The reason for sub-clause 2 is that when postponement of repairs is chosen, for instance when the vessel is trading at an especially favourable rate, the basis for the original assessment may no longer apply.